Graham Liddell: Speeding up the internal audit countdown

Traditionally heads of internal audit boast to their peers about the number of days in their audit plans. But, as budgets are squeezed, a different question is being whispered, ‘How low can you go?’ Graham Liddell considers how s151 officers and heads of internal audit work together to deliver an efficient and effective audit service with fewer audit days.   

Budget discussions between s151 officers and all heads of service are becoming increasingly challenging and local authority service professionals respond by managing demand on their services and working with colleagues and partners to deliver more with less.

So how does this apply to the conversations between the s151 officer and the head of internal audit, where the s151 officer is both a customer looking to drive down costs and has a statutory responsibility to ensure that there is an effective internal audit function in place?

Internal audit budgets are pretty small beer and any decent head of internal audit should be able to demonstrate to the s151 officer that the benefit of the team to the local authority far exceeds its cost.

This is especially true during periods of major change when controls can be compromised, or lost, and maintaining a strong control environment becomes ever more important.

But internal audit teams, as agents of change and sharers of best practice, have a leadership role to play. Internal audit cannot be immune to the budgetary pressures that affect the rest of the organisation.

The head of internal audit needs sufficient audit days to be able to deliver an internal audit in accordance with professional standards. This includes:

• delivering a safe opinion on the control environment
• making and following up recommendations to address control weaknesses
• ensuring that any additional work expected by the s151 officer and others doesn’t undermine the audit plan.

In light of budgetary pressures, heads of audit might be tempted to reduce costs simply by delivering fewer audit days and reducing the scope of the audit plan. This is usually easy to achieve by applying the audit equivalent of budget salami slicing:

• tweaking the risk assessment criteria
• extending the cyclical programme over a longer period of time
• reducing added value work.

It works, of course, but there is an inevitable slide towards a diminished service that delivers lower assurance and fewer benefits to the local authority.

Alternatively, s151 officers and heads of internal audit can use budgetary pressures to consider more innovative solutions. Here are some challenge questions to help develop a strategy to minimise the cost of delivering an internal audit plan and maximise the opportunities to add value.

Challenge questions

1 Based on current ways of working what is the lowest number of days in which the 2015/16 internal audit could have been delivered?

• Were there any audits that didn’t contribute to the overall audit opinion?
• Are there any audits where we could have relied on work for previous years?
• How much contingency is needed?

2 What is the expected impact on audit days from changes in 2016/17?

• Are there any changes in the audit universe?
• Are there any additional risks?
• Are there any risks that no longer need to be considered?

3 Is there any learning that can be drawn from other similar local authorities?

• Do any other local authorities deliver their audits in significantly fewer days?
• What do they do that is different that could be applied locally?

4 What is the impact of any additional work expected of the IA team (counter fraud work, corporate support, meeting the expectations of external auditors, ad hoc investigations etc.)?

• How many days are needed?
• Can any of this work be used to contribute to the audit plan and reduce work elsewhere?

5 What opportunities are there to secure efficiencies (some of these will take more than one year)?

• Can a wider range of audit techniques be used (including data matching and other analytical tools)?
• Can increased reliance be placed on other sources of assurance (eg through mature risk management arrangements and formal assurance frameworks such as the three lines of defence)?
• Can economies of scale be secured by working in partnership with other internal audit teams?
• Can the skill mix of the team be optimised?
• Are there opportunities to manage contingencies more effectively, for example through a call-off contract with a private sector supplier?

6 How much time is needed to develop the service?

• Quality improvements?
• Implementing major change?

There will of course be other ways to deal with these pressures. The key message is that s151 officers will need to work with their heads of internal audit to consider how best avoid the trap of salami slicing.

Graham Liddell is head of internal audit, Brighton & Hove Council. In his next article, Graham considers the relative merits of delivering internal audit services in-house, outsourcing and shared service arrangements.

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Calendar photo (cropped): Daphne Cholet, Flickr.